Reference no: EM131317971
1. Based on the following information, construct a traditional financial institution balance sheet AND a balance sheet including off-balance sheet items.
Market value of assets = 200
Market value of liabilities = 180
Market value of contingent assets = 100
Market value of contingent liabilities = 110
2. Why does credit risk exist for financial institutions? How does diversification affect credit risk exposure for a financial institution?
3. For commercial and industrial loans, explain how the credit risk profile of the financial institution changes as a result of issuing a secured loan versus an unsecured loan. Explain how syndicating a loan can reduce credit risk for a financial institution.
4. What is the difference between credit risk and sovereign risk? Name one way to control each.
5. What is the source of most profits and losses on foreign exchange trading? What foreign currency activities provide a secondary source of revenue?
6. What is the greatest cause of liquidity exposure faced by property-casualty insurers? Is the liquidity risk of property-casualty insurers in general greater or less than that of life insurers?
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